View From Down Under

I like data.  Data is powerful.  Data can be misused or misinterpreted, but it doesn’t lie.  It has no agenda.  It is what it is.

When I test rhetoric against data, I find some interesting dichotomies, and over the years this process has driven me from right of center to somewhat left of center.

Here’s a case in point.  The right wing has long painted the Democrats as big spenders, eager to take the hard earned money from the honest, small business owning, risk taking entrepreneurs and give it to the lazy, shiftless, leeches of society through major handout programs and massive pork barrel programs of little benefit to the nation as a whole.

This continues even today, with a recent editorial by Peggy Noonan painting the GOP as the party of fiscal restraint.

“The GOP itself should be going forward with its philosophy, with the things it’s long stood for and, in some cases, newly rediscovered, and painting the broader picture of the implications of endless, compulsive high spending.”

Here’s the data.  Taking the federal deficit as a % of GDP, and adding up the numbers for each President’s budget terms, the cumulative deficit numbers look like this*:

Admittedly, this is a somewhat blunt analysis, but however the analysis is done, the picture is clear: Democratic Presidents, on the whole, have been remarkably responsible (fiscally). Republican Presidents have been the “compulsive high spenders”.

Of course, this is not new, or news worthy, but it continues to amaze me that the right wing still genuinely believe that Democrats are fiscally irresponsible.

* I have not included Obama because these numbers are actual (not budget) and Obama has no actual numbers.  He has proposed only one budget (although the expected deficit of nearly 10% of GDP would put him in the big spending category).

According to the New York Times, the Senate and the White House are close to announcing a council of regulators whose focus is to identify systemic risk in the financial system.

This is a good idea.  After previous financial crises, Congress enacted knee jerk, Sarbanes Oxley kind of legislation that added layers of compliance costs without adding any value to society.  They seem to be learning, and there are apparently enough Congressmen with the sense to recognize that they cannot legislate away the next crisis by trying to legislate away the last one.

Senator Mark R. Warner (D-VA) showed some rare economic sense when he said:  “You need a vigorous, focused group. You don’t need to create some massive new bureaucracy, but a place to share information and do some level of analysis.”

Admittedly an oversimplification, but the last financial crisis was mainly fuelled by asset inflation driven by financial innovation – financial products created in the last few years, sold by people with no economic interest in anything beyond the sale, and bought by investors who could not understand the risk.  These products were not so much outside the existing regulatory system as they were above it, with different agencies responsible for regulating different parts but no regulator looking at the whole.

The Senate/White House plan will give the President and Congress the ability to say they have acted as a result of the financial meltdown, and may even help prevent another similar crisis, but shouldn’t add costly layers of additional regulation.

Regardless of what form the legislation takes, it is a certainty that there will be another financial crisis at some point in the next decade or so.  The next financial crisis will be both similar and different to the last one.  It will be similar in that some assets will be overpriced, with lenders willing to lend far more than is prudent.  It will be different in that the overpriced assets will not be collateralised mortgage obligations.  After the asset inflation, there will be a liquidity crunch precipitated by an unsuspected event.  That event could be anything from a slowdown of growth in China, to a sovereign wealth default, to the realisation that some assets are fundamentally overvalued (a la dotcoms, tulip bulbs, or CMOs).

Therefore it is a certainty that no legislation will prevent every future financial crisis.  However, a council involving several regulatory agencies whose brief is to look for systemic risk is far more likely to be effective than creating a Consumer Financial Protection Agency, or any other proposal I’ve seen so far.

President Obama is finally starting to show some much needed leadership on health care reform, inviting Democratic and Republican leaders to a health care summit, and promising to publish its own version of health care legislation in advance.  Obama challenged Republicans to do the same.

Despite the rhetoric from the White House, there is little hope that a bipartisan health care reform package will emerge from the process.

The last time the Republicans put forth their health care plan it was weak, marginal, and provided little other than tort reform.  It appeared to be a hasty answer to the charge that they were just being obstructive, and fortunately the plan sank into oblivion quite quickly.

Nonetheless, Republicans have deep differences with Democrats on what health reform means.  The Republican position on health care appears to be something like this:  we should let the ‘free market’ provide health care; but don’t cut Medicare (even though several Republican proposals do exactly that); and don’t remove the tax break for employee funded insurance (which would at least attempt to create a free market); and do allow interstate insurance programs (while continuing to allow wildly different state based standards); and ‘enhance’ the free market with a combination of vouchers, savings incentives, and tax credits.

That they have been allowed to get away with this as a ‘policy’ is bemusing, to say the least.

To Democrats, health care reform means making sure all Americans, or as many as possible, have health insurance.  The rest of the Senate bill is basically trying to pay for this, with a number of pilot programs that will probably reduce costs over time but whose ultimate impact is unknown.

When you consider that most Republican voters are not opposed to expanding insurance cover (in fact it was part of John McCain’s campaign platform) yet Republican leaders passionately oppose the Senate bill, it becomes clear that what the right wing really wants is for the President to fail so they can replace him with Sarah Palin.

Let’s be clear, neither side is really proposing health care reform, and despite the rhetoric that this is an historic ideological battle, the reality is that both sides are talking about fairly minor changes to an insurance based system supplemented by government health care for the elderly and poor.

With his summit, Obama is making one last effort at appearing to be bipartisan before pushing through a health care bill.  He cannot afford to head into the next election with no health care bill passed, but also doesn’t want to be painted as part of an arrogant left wing that can’t negotiate with Republicans.

The view from down under is that it is past time for Obama to stop delegating to Congress, and time to provide clear leadership.  The promise to publish the White House plan, which will undoubtedly have support of Democratic congressional leaders, is a good first step in that it moves the plan from being a Pelosi plan or a Reid plan to being an Obama plan.

If the Republicans offer to negotiate for a better bill, the Democrats will have won the public debate and will have a comprehensive health care bill passed soon.  Of course, Republicans know this, and because of their past rhetoric their logical course of action is to continue to obfuscate, try to scare people (death panels part deux?) and do their best to block all legislation.

Which, ironically, will make the final bill much more of a left wing reform bill and therefore more likely to have real impact on both the cost and availability of health care in America.

There is little doubt that inadequate regulation contributed to the financial meltdown of 2008.  Financial institutions were using government guaranteed funds to purchase ‘innovative’ financial products whose risks were poorly understood.  Investment banks were creating these new products with little or no oversight, generating billions in fees for reallocating risk from those who owned it to those who thought they weren’t buying it.  Governments around the world were forced to intervene to prevent catastrophic failure of the global financial system.  A major revamp of US financial regulation is an appropriate response.

Ideally, the government should review existing regulation, understand where it fell short in the last financial crisis, and develop ways to fill those gaps.

Unfortunately, the US political system does not work that way.  The House passed legislation last week that focuses on punishing the banks, inserting Congress into the decision making of the Federal Reserve, and shifting consumer credit regulation from the Fed to a new agency.

The Consumer Financial Protection Agency is Barney Frank’s reaction to the subprime lending crisis.  Democrats in the House apparently believe the subprime crisis was a failure of consumer protection.  If the new agency is to have the effect of preventing another subprime crisis, it should be charged with restricting lending to consumers who should not borrow.  But of course, it is not.  The objectives of the agency are to ensure that: consumers have the information they need to make responsible decisions; consumers are protected from abuse, unfairness, and discrimination; markets for consumer financial products operate fairly and efficiently; and traditionally underserved consumers and communities have equal access to responsible financial services.

Barney Frank does not seem to understand that the financial crisis was caused by an explosion of innovative financial products, sold to investors who did not understand the risks, underwritten by insurers who did not understand the risk, and aggressively leveraged by lenders who did not understand the risks.  A large number of consumers were caught in this process, consumers who should not have qualified for loans in the first place.  But nothing I’ve seen in the house bill addresses the fundamental breakdown in financial regulation prior to the crash, and more consumer protection (as noble as it sounds) will not prevent another financial crisis.

A recent poll suggests that 52% of Republican believe that ACORN stole the election for Barack Obama in 2008, and only 27% of Republicans believe he won the election legitimately (and an amazing 21% not sure).  Among Democrats, 86% believe Obama won the election legitimately.   Although the wording of the poll is, in my view, suggestive and designed to deliver this result, the numbers are still quite dramatic.

Before we dump on  Republicans, we should remember that in 2001, 79% of Democrats believed George W Bush did not win the 2000 election “fair and square”, and 28% believed he “stole” the election.  Among Republicans, 85% said Bush won fair and square.

Any rational person would admit that there were more grounds to be suspicious of the final result in 2000 than in 2008.  Nevertheless, it does illustrate the polarization of thinking between Republicans and Democrats.

It also suggests that both Democrats and Republicans fail to accept that any intelligent human could disagree with them, and if an election proves different then it must be that the results have somehow been rigged.  Only an election that delivers the outcome they want will be seen as legitimate.

Viewed from down under, they sound like spoiled little children.

When the economic stimulus bill passed in February, no Republican reps and only two Republican senators supported the bill.

House Republican Leader John Boehner said at the time “Democratic leaders barrelled ahead with their trillion-dollar spending plan that everyone agrees won’t work.”  John McCain showed amazing ignorance of economics with this quote:   “’The American people are beginning to figure out what this package is, that it’s not a stimulus package — it’s a spending package” (as if there is a difference).  He said this as he was introducing amendments to add $75 billion of spending to the package.

With language like this, the Republicans put themselves in a no-win situation.  There is no doubt that government economic stimulus boosts short term economic growth.  This is true both across history and across every economy.  By opposing it, Republicans portrayed themselves as obstructionist and pro-recession.

Now that the economic stimulus package is having a strong positive effect on the economy, Republicans have painted themselves into the ‘Chicken Little’ corner.  The plan that “everyone agrees won’t work” appears to be working pretty well.

The Republican response to the economic data was basically, “OK the economy is growing but where are the jobs now let’s talk about health care”.

With unemployment typically a lagging indicator, and independent research suggesting the stimulus plan has created or saved between 600,000 and one million jobs, no wonder Republicans want to change the subject.

President Obama gave a speech at Texas A&M University last night.  Aside from being my alma mater, it is also known as the most conservative university in the country.  Obama was there by invitation from George H.W. Bush to hold a forum on community service.

There was, of course, a protest organised.  It could be that the age of university students has gone way up, but from the photos it looks like at most half the crowd are students.  I particularly liked this guy, who looks like a regular at the Dixie Chicken.   This one wants Obama to call Glenn Beck – but doesn’t say what she wants Obama to call him.  You can get a sense of the size of the crowd from the supporters behind this guy.

I was a student at A&M when Jimmy Carter was President.  I was never a fan of President Carter (although I think he has made a pretty good ex President), but if he had arrived on campus to talk about community service, I can’t imagine there would have been this kind of protesting.  So I was encouraged by this video, posted by The Battalion (Texas A&M’s student newspaper and source of the other photos).  Starts off with a student protest, and then gets into some very sensible student reaction.

(H/T: The Battalion Online)

A recent poll had some interesting data on the divisive nature of the health care debate. When about 1000 people were asked if they supported or opposed the health care proposal, results were pretty evenly split: 52% in favor, 48% opposed.

But when you throw party identification into the mix:

Talk about your stark contrast! 84% of democrats support, 88% of republicans oppose.

The poll then asked: Do you think the majority of the public favors or opposes health care reform? Before looking at the chart below, remember it’s pretty evenly split (52/48).

The democrats underestimate the amount of opposition, but the republicans really missed this one badly. 73% of them think the majority of Americans oppose reform. Makes you think the republicans are only listening to other republicans.

One final chart, without further comment. The question is: If Congress passes and the President signs a health care reform bill, do you think:

Politics and political discourse in the US has polarized over the last 30 years, with both politicians and voters moving further from the center.  The cause may be geographic self selection, or changes to the legal framework.  Or it may be more complicated.

Other forces that have been accused of complicity in this polarisation include income inequality, increasing immigration (particularly illegal immigration), growth of fundamentalist religion, imbecilic left wing radicals, fascist right wing radicals, increasingly effective protest strategies, and etc.

Whatever the causes, the result is not disputed.  Analysis of voting patterns in Congress shows quite a clear move away from consensus and towards increasing divergence.  Polls such as those on health care reform show an increasing split among American voters.

So, is this a good thing or a bad thing?

Polarization has the effect of stifling reform.  If the members of Congress are polarized in opinion and politically unable to compromise (by compromising they risk losing their seat), meaningful reform grinds to something close to a halt.  Whether this is a good or bad thing depends on whether you support the particular reform in question.  Polarization limited the cuts on capital gains and death taxes proposed by the Bush administration, and is now limiting the ability of the Obama administration to implement health care reform.

Being a fan of progress, I think this is a bad thing.

Polarization has certainly made politics more interesting.  Elections tend to mean more than they used to, candidates are more clearly different from each other, and television and radio coverage of politics is far more entertaining.  Rush Limbaugh would not be worth listening to if he had moderate views, and would certainly be a far less wealthy man today.

However, entertainment always comes at a cost.  Trying to filter out what actually happened from what the talking heads are saying is becoming more and more difficult.  And I find the continuous search for outrage by the political commentators to be tiresome and, frankly, childish.

To me the worst thing about this trend is the lack of sense it makes.  Taking extreme left or right wing views almost always involves ignoring facts and letting ideology or emotion govern reaction.  Wouldn’t it be a better place if we looked at proposals on their merits, instead of the knee jerk reaction of labelling things socialist or racist because they came from the other side of the aisle?

Of course, that is a pipe dream in the US today.

Stephen Gottlieb of the Albany Law School recently published a paper describing the polarization of politics in terms of legal and regulatory changes over the last 25 years.  He focused on two areas: media and candidate selection.

In the days of Walter Cronkite, there were three national networks operating under a fairness doctrine which required the networks to show both sides of a political argument.  Because that was both controversial and kind of boring, network news and commentary was designed not to offend.  The focus was on “that’s the way it is”, and no further.  As the media framework shifted to allow more networks, the upstarts found they needed to differentiate themselves.  The mainstream networks ultimately found that trying to please everyone ended up pleasing no one – and losing ratings in the process.  In the chase for advertising dollars, news became more political, reporting changed to analysis, and analysis descended into name calling and face pulling.

At the same time, the candidate selection process shifted solidly towards primaries.  This move, coupled with increased gerrymandering of safe seats and changes to campaign finance laws, ended up with each party putting up candidates that were more and more removed from the center.

So the question that raises to me is: Do you watch or listen to programs you may disagree with?  Any liberals out there spend any time listening to Limbaugh or watching O’Reilly?  Any conservatives spend time on the Huffington Post? 

A couple of other questions:  Does anyone get excited about a moderate candidate?  Do you trust any television or radio host as much as you trusted Walter Cronkite?